The problem is probably the hard drive being formatted in NTFS which is not recognised by FDISK on the 98 boot disk. Therefore the NTFS patition needs to be removed, there is an application called DELPART.EXE which will do this for you, it can be obtained from here:
Put the 98se startup disk in - re-boot and fdisk it i.e. delete the partition with xp on. As the file system is ntfs 98se will not pick it up as a partition. Simply chose search for other partitions. The ntfs partition will show up - so delete it. Escape from fdisk and re-boot with the 98se disk in and chose "with cd support". Simply format c:\ and off you go.